Agribusiness fears dog Monsanto, Pharmacia
December 22, 1999
By Mariam Isa
STOCKHOLM, Dec 21 (Reuters) - Shares in merger
partners Monsanto Co and Pharmacia & Upjohn fell further
on Tuesday and are likely to be blighted for many months
to come by worries over the future of Monsanto's
embattled agrochemicals unit, analysts said on Thursday.
Pharmacia shares closed 19.5 Swedish crowns lower at
381.50 in Stockholm while in New York the shares were
down $2-3/8 at $44-3/4 and Monsanto was down $1-3/8
at $35-1/4 by 1650 GMT.
Analysts expect the combined group to eventually divest
Monsanto's profitable but debt-burdened agricultural
business, which is being sued by U.S. and French farmers
worried about the safety of its genetically altered crops.
But this is unlikely to take place for at least two years,
and several banks have cut their recommendation for P&U
to "hold" from "buy" on the assumption that its share
price will remain volatile until uncertainties over the issue
are resolved.
U.S. Monsanto has managed to reap some rewards from
Monday's news of the intended merger to create the
world's eleventh largest drugs company as U.S. ratings
agency Standard & Poor's said it might raise its debt
ratings for Monsanto, while lowering those of its partner.
But the fall in the share prices has devalued the combined
market capitalisation of the two companies to around $48
billion from $53.21 billion prior to the deal, according to
Reuters Securities 3000 data.
"The general scepticism of European consumers to
genetically modified food is a problem which will haunt the
company for the coming two years -- there is limited
upside in the short-term," Carnegie analyst Peter Sellei
told Reuters.
Like other Swedish analysts, who declined to be named,
he has just downgraded P&U to a 'hold' from 'buy' and
sees scope for further declines in the American-Swedish
company's price.
Meanwhile in New York, Ryan Beck & Co and Le Anne Zhao
both downgraded P&U, citing an uncertain future for
agricultural products.
UNCERTAINTY OVER AGRICHEMICAL OUTLOOK
"The combined company will carry the (agrichemical)
problem and its pharmaceutical business will catch this
infectious disease -- we don't know whether the patient will
be healthy or very sick," Den Danske Bank analyst Carl
Harald Janson said.
"The share market will look at Pharmacia and Monsanto
with some scepticism during the next 12-16 months until
these issues are solved," he added. He declined to give
an outlook for the share, but said further
underperformance was possible.
The new company has said it will set up its agribusiness
unit as a separate entity and make a public offering of up
to 19.9 percent of its shares six months after the merger,
which it hopes will be completeed vin the second quarter
of 2000.
Most see this as a definite signal of eventual divestment,
after a decision by Switzerland's Novartis AG and
Swedish-UK group AstraZeneca Plc to combine and spin off
their respective agricultural units early this month.
If this does happen, the long-term outlook for the
marriage is rosier, as its partners make complementary
pharmaceuticals products and lack overlapping markets.
Handelsbanken's Stefan Wikholm is one of the few
Swedish anlaysts who have upgraded P&U on the merger,
raising his recommendation to a "strong buy" from a
"buy" and increasing his share target for the company by
eight percent to 540 crowns.
"I am looking at the group as a pharmaceutical company
which will get a clearly stronger business...," he said.
The merged company will brandish an impressive arsenal
of drugs, including Monsanto's top-selling arthritis drug
Celebrex and treatments for glaucoma, colorectal cancer
and insomnia.
But P&U's expected double-digit growth in drugs sales is
unlikely to be matched by earnings on the agricultural
business side, despite the fact that Monsanto's business
is the most profitable in that sector.
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